Thursday, February 27, 2014

Options Expiration (OPEX) and Quadruple Witching; SchoolOfTrade.com



This video and article will teach you about Options Expiration and Quadruple Witching

Options Expiration, commonly referred to as 'OPEX', is one aspect of trading that every new trader must learn...even if you do NOT trade options because it impacts the entire industry and you will need to be prepared for added volatility during this time.


It can be a little confusing at first, but if you know the basics it is easy to remember and manage.

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There are two (2) important things to know:

1.  ("OPEX") Options Expire on the 3rd Friday of every 1 month

2.  ("Quadruple Witching") Options, including Options on Futures, Expire on the 3rd Friday of every 3 months (end of each quarter).

You need to know... the 3rd week of March, June, September, and December is considered 'Quadruple Witching' and traders need to use caution during those weeks of the year.


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When do Options Expire?

Expiration day for equity and index options is the Saturday immediately following the third Friday of the expiration month until February 15, 2015. On and after February 15, 2015, the expiration date will be the third Friday of the expiration month.

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Why should you care about Options Expiration?

Even if you do not trade options, the fact that options are expiring means that traders around the world who DO trade options will be exercising their 'in the money' options which adds a tremendous amount of volume and unexpected volatility to the market you trade.

If you do not trade options, all you need to be aware of is that you need to be very careful when you trade during 'OPEX' because the volatility will increase dramatically and you need to be aware of that added risk.

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What is the difference between OPEX and Quadruple Witching?

Quadruple witching occurs at the end of each quarter, and there are 4 different asset-classes expiring at that time, which leads to even more volatility during that 3rd week of every 3 months.

In addition to volatility, there is a self-fullfilling prophesy added in... everyone knows when Quadruple Witching will occur, and therefor most traders avoid trading, which makes the effects of Quadruple Witching even more dramatic.

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Definition of 'Quadruple Witching'

The expiration date of various stock index futures, stock index options, stock options and single stock futures. All stock options contracts expire on the third Friday of each month and once every quarter - on the third Friday of March, June, September and December - all four asset classes expire on the same day. Because futures and options investors must close out of their positions on those days, they often witness increased trading volume.

The term "witching" comes from the fact that in the past, the expiration of futures and options contracts occurred not only on the same day, but at the same time. This often resulted in a period of greater-than-normal market volatility, which became known as the "witching hour." Due to this increased volatility and frenzied market activity, many investors approach the markets differently on witching days.

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Where can I learn more about Options Expiration and Quadruple Witching Dates for this year?

Options Expiration Calendar:
http://www.marketwatch.com/optionscenter/calendar

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Thanks for watching!

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